7/8/2010

9
Strategy Implementation:
O
Organizing
i i for
f Action
A ti

1-1

“The best game plan in

the world never blocked
or tackled anybody.”

Vince Lombardi

1-2

“A second-
second-rate strategy
perfectly executed will beat
a first-
first-rate strategy poorly
executed every time.”
Richard M. Kovacevich

1-3

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Chapter Guidelines
‹ A Framework for Executing Strategy
‹ The Principal Managerial Components of the Strategy
Execution Process
‹ Building an Organization Capable of Good Strategy
Execution
‹ Staffing the Organization
‹ Building Core Competencies and Competitive Capabilities
‹ Execution-Related Aspects of Organizing the Work Effort
‹ Current Organizational Trends
1-4

Formulation vs. Executing Strategy

Crafting the Strategy
‹ Primarily a market-driven activity
‹ Successful strategy making
depends on
Î Business vision
Î Perceptive analysis of market
conditions and company
capabilities
Î Attracting and pleasing
customers
Î Outcompeting rivals
Î Using company capabilities
to forge a competitive
advantage
1-5
Executing the Strategy
‹ Primarily an operations-driven
activity
‹ Successful strategy execution
depends on
Î Doing a good job of working
through others
Î Good organization-building
Î Building competitive
capabilities
Î Creating a strategy-
supportive culture
Î Getting things done and
delivering good results

Implementing the Strategy

‹ An action-oriented, make-things happen task involving
management’s ability to
Implementation
Î Direct organizational change involves . . .
Î Achieve continuous improvement in
operations and business processes
„ Move toward operating excellence
Î Create and nurture a
strategy-supportive culture
Î Consistently meet or beat performance targets
‹ Tougher and more time-consuming than crafting strategy
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Implementing a New Strategy

Requires Adept Leadership
‹ Implementing a new strategy
takes adept leadership to

Î Convincingly communicate
reasons for the new strategy
gy

Î Overcome pockets of doubt

Î Secure commitment of concerned parties

Î Build consensus and enthusiasm

Î Get all implementation pieces in place and coordinated

1-7

Why Executing Strategy Is

a Tough Management Job
‹ Overcoming resistance to change
‹ Wide array of demanding managerial
activities to be performed
‹ Numerous ways to tackle each activity
‹ Number of bedeviling issues to be worked out
‹ Demands good people management skills
‹ Requires launching and managing
a variety of initiatives simultaneously
‹ Hard to integrate efforts of many different work groups into a
smoothly-functioning whole
1-8

Who Are the Strategy

Implementers?
‹ Implementing and executing strategy involves a company’s
whole management team and all employees
Î Just as every part of a watch plays a role in making the watch
function properly, it takes all pieces of an organization working
cohesivelyy for a strategy
gy
to be well-executed
‹ Top-level managers must lead the
process and orchestrate major initiatives
Î But they must rely on cooperation of
„ Middle and lower-level managers to see things go well in various
parts of an organization and
„ Employees to perform their roles competently

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Goals of the Strategy

Implementing Process
‹ Unite total organization behind strategy

‹ See that activities are done in a manner that is conducive to

first-rate
first rate strategy execution

‹ Generate commitment so an enthusiastic

crusade emerges to carry out strategy

‹ Fit how organization conducts its

operations to strategy requirements
1-10

Characteristics of the Strategy

Implementation Process
‹ Every manager has an active role

‹ No proven “formula” for implementing

particular types of strategies
‹ There are guidelines,
guidelines but no
absolute rules and “must do it
this way” rules
‹ Many ways to proceed that are
capable of working
‹ Cuts across many aspects of “how to manage”
1-11

Characteristics of the Strategy

Implementation Process (continued)
‹ Each implementation situation occurs in a different context,
affected by differing
Î Business practices and competitive situations

Î Work environments and cultures

Î Policies

Î Compensation incentives

Î Mix of personalities and firm histories

‹ Approach to implementation/execution
has be customized to fit the situation
‹ People implement strategies - Not companies!
1-12

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The Eight Components of the Strategy Execution Process

1-13

What Top Executives Have to Do in

Leading the Implementation Process
‹ Communicate the case for change
‹ Build consensus on how to proceed
‹ Arouse enthusiasm for the strategy to turn implementation process
into a companywide crusade
‹ Empower
E subordinates
b di t tto kkeep process moving
i
‹ Establish measures of progress and deadlines
‹ Reward those who achieve
implementation milestones
‹ Direct resources to the right places
‹ Personally lead strategic change process
and the drive for operating excellence
1-14

BUILDING A CAPABLE
ORGANIZATION — WHAT IS
INVOLVED?

1-15

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The Three Components of Building an

Organization Capable of Proficient Strategy Execution

1-16

Putting Together a
Strong Management Team
‹ Assembling a capable management team is a cornerstone of
the organization-building task

‹ Find the right people to fill each slot

Î Existing management team

may be suitable

Î Core executive group

may need strengthening
„ Promote from within

„ Bring in skilled outsiders

1-17

Selecting the Management Team:

Key Considerations
‹ Determine mix of
Î Backgrounds

Î Experiences and know-how

Î Beliefs and values

Î Styles of managing and personalities

‹ Personal chemistry must be right

‹ Talent base needs to be appropriate

‹ Picking a solid management team needs to be acted on early

in implementation process
1-18

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Recruiting and Retaining Talented

Employees: Implementation Issues
‹ The quality of a company’s people is an essential ingredient of
successful strategy execution
‹ Biggest challenge facing companies
Î How to recruit and retain the best
and brightest talent with strong
skill sets and management potential
‹ Intellectual capital, not tangible assets, is increasingly being
viewed as the most important investment
Î Talented people are a prime source of competitive advantage

1-19

Key Human Resource Practices to

Attract and Retain Talented Employees
‹ Spend considerable effort in screening job applicants, selecting
only those with
Î Suitable skill sets
Î Energy and initiative
Î Judgment and aptitudes for learning
Î Ability to adapt to firm’s work
environment and culture
‹ Put employees through training
programs throughout their careers
‹ Give promising employees challenging, interesting, and skills-
stretching assignments
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Key Human Resource Practices to

Attract and Retain Talented Employees
(continued)
‹ Rotate employees through jobs with great content, spanning
functional and geographic boundaries
‹ Encourage employees to
Î Be creative and innovative
Î Challenge existing ways of
doing things and offer better ways
Î Submit ideas for new products or businesses
‹ Foster a stimulating work environment
‹ Exert efforts to retain high-potential employees with excellent
salary and benefits
‹ Coach average employees to improve their skills
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Building Core Competencies

and Competitive Capabilities
‹ Crafting the strategy involves

Î Identifying the desired competencies and

capabilities to build into the strategy to help
achieve a competitive advantage

‹ Good strategy execution requires

Î Putting desired competencies and capabilities in place,

Î Upgrading them as needed, and

Î Modifying them as market

conditions evolve
1-22

Example: Intel’s Core

Competence

Design and mass production

of complex chips
for personal computers

1-23

Example: Procter & Gamble’s

Core Competencies
Superb marketing-distribution skills and R&D
capabilities in five core technologies - fats,
oils, skin chemistry, surfactants, emulsifiers

1-24

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Example: General Electric’s

Core Competencies
Developing professional managers with broad
problem-solving skills and
proven ability to grow
global
l b l businesses
b i

1-25

Example: Disney’s Core

Competencies

Theme park operation and

family
y entertainment

1-26

Example: Dell’s Core

Competencies
Capabilities to deliver state-of-the-art
products to customers within days of next-
generation components coming available and
at attractively low costs

1-27

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Example: Toyota’s Core

Competence
Legendary “production system” giving it
the capability to produce high-quality
vehicles at relatively
y low costs

1-28

Three-Stage Process of Developing

Three-
Competencies and Capabilities
1. Develop ability to do something

2. As experience builds,
ability can translate into a
competence or capability

3. If ability continues to be polished and refined, it can

become a distinctive competence, providing a path to
competitive advantage!

1-29

Step 1 in Developing
Competencies
‹ Develop ability to do something

Î Select people with relevant skills/experience

Î Broaden or expand individual abilities as needed

Î Mold efforts and work products of

individuals into a cooperative effort
to create organizational ability
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Step 2 in Developing
Competencies
‹ As experience builds and company learns how to perform the
activity consistently well and at acceptable cost, the ability
evolves into a competence or capability
‹ Typically, a capability or competence emerges from
establishing and nurturing collaborative relationships
between
Î Individuals and groups in different departments and/or
Î A company and its external allies

1-31

Step 3 in Developing
Competencies
‹ If company masters the activity, performing it better than
rivals, the “capability” or “competence” becomes a

Î Distinctive competence and

Î Holds potential for

competitive advantage

This is the optimal outcome of the process

of building capabilities-competencies!

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Managing the Process of Building

Competences: Four Key Traits
1. Competencies are bundles of skills and know-how
growing from combined efforts of cross-functional
departments
2. Normally, competencies emerge incrementally from
various company efforts to respond to market conditions
3. Leveraging competencies into competitive advantage
requires concentrating more effort and talent than
rivals on strengthening competencies to create
valuable capabilities
4. Sustaining competitive advantage requires adjusting
competencies to new conditions
1-33

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Approaches to Developing
Competencies
‹ Internal development involves either
Î Strengthening the company’s base of skills, knowledge, and
intellect or
Î Coordinating and networking the efforts
of various work groups and departments
‹ Partnering with key suppliers,
forming strategic alliances, or maybe
even outsourcing certain activities to
specialists
‹ Buying a company that has the required capabilities and
integrating these competences into the firm’s value chain
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Updating Competencies and

Capabilities as Conditions Change
‹ Competencies and capabilities must
continuously be modified and perhaps
even replaced with new ones due to
Î New strategic requirements

Î Evolving market conditions

Î Changing customer expectations

‹ Ongoing efforts to keep core competencies up-to-date can

provide a basis for sustaining both
Î Effective strategy execution and

Î Competitive advantage
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Strategic Role of Employee

Training
‹ Training plays a critical role in implementation when a firm
shifts to a strategy requiring different
Î Skills or core competences
Î Competitive capabilities
Î Managerial approaches
Î Operating methods

‹ Types of training approaches

Î Internal “universities”
Î Orientation sessions for new employees
Î Tuition reimbursement programs

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Î Online training courses

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Competitive Advantage Potential

of Competencies and Capabilities
When it is difficult to outstrategize rivals with a
superior strategy . . .

. . . Best avenue to industry

leadership is to out-compete rivals
with
superior strategy execution!

Building competencies and capabilities

rivals can’t match is one of the
best ways to out-compete them!
1-37

Execution-Related Aspects
Execution-
of Organizing Work Efforts
‹ Few hard and fast rules for organizing
Î One Big Rule: Role and purpose of organization structure is
to support and facilitate good strategy execution!
‹ Each firm’s structure is reflecting
Î Prior
P i arrangements
t andd internal
i t l politics
liti
Î Executive judgments and preferences about how to arrange
reporting relationships
Î How best to integrate and coordinate work effort of different work
groups and departments
CEO

Vice President Vice President Vice President

1-38

Structuring the Work Effort

to Promote Successful Strategy Implementation

1-39

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Step 1:
1: Decide Which Value Chain Activities
to Perform Internally and Which to
Outsource
‹ Involves deciding which activities are
essential to strategic success
Î Most strategies entail certain crucial business processes or
activities that must be performed exceedingly well or in closely
coordinated
di t d fashion
f hi if the
th strategy
t t iis
to be executed with real proficiency
„ These processes/activities usually Critical
need to be performed internally activities

Î Other activities, such as routine

administrative housekeeping and
some support functions, may be
1-40 candidates for outsourcing

Determining Strategy
Strategy--Critical Activities:
Issues to Consider

1. What functions or business processes

have to be performed extra well or in
timelyy fashion to achieve competitive
p advantage?
g

2. In what value-chain activities would

poor execution seriously impair
strategic success?

1-41

Potential Advantages of
Outsourcing Non
Non--Critical Activities
‹ A company improves its chances for outclassing rivals in
Î Performing strategy-critical activities and
Î Turning a core competence into a distinctive competence
‹ Streamlining of internal operations that flows from outsourcing acts to
Î Decrease
D internal
i t l bbureaucracies
i
Î Flatten organization structure
Î Speed decision-making
Î Increase competitive responsiveness
‹ Partnerships can add to a company’s arsenal of capabilities and
contribute to better strategy execution

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Appeal of Outsourcing
‹ Outsourcing non-critical activities allows a firm to concentrate
its energies and resources on those value-chain activities
where it

Î Can create unique

q value

Î Can be best in the industry

Î Needs direct control to

„ Build core competencies

„ Achieve competitive advantage

1-43
„ Manage key customer-supplier-distributor relationships

Potential Advantages of
Partnering
‹ By building, improving, and then leveraging partnerships, a firm
enhances its overall capabilities and builds resource strengths
that
Î Deliver value to customers

Î Rivals can’t quite match

Î Consequently pave the way

for competitive success

Partnering makes strategic sense when the

result is to enhance a company’s competencies
and competitive capabilities.
1-44

Dangers of Outsourcing
‹ A company must guard against hollowing out its knowledge
base and capabilities

‹ Way to guard against pitfalls of outsourcing

Î Avoid sourcing key components from a single supplier

Î Use two or three suppliers to minimize

dependence on any one supplier

Î Regularly evaluate suppliers

Î Work closely with key suppliers

1-45

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Step 2: Make Strategy-

Strategy-Critical
Activities the Main Building Blocks
‹ Assign managers of strategy-critical activities a visible,
influential position

‹ Avoid fragmenting responsibility for strategy-critical activities

across many departments
Assign
‹ Provide coordinating linkages managers
key roles
between related work groups
Primary Support
activities functions

Î Meld into a valuable

Strategic Valuable
competitive capability relation-
Coordi-
nation capability
ships

1-46

What Types of Organizational

Structures Fit Which Strategies?
‹ A company operating in one business
Î Functional department structure

‹ A company with operations in various parts of the world

Î Geographic organizational units

‹ A vertically integrated company

Î Divisional organizational structure

‹ A diversified company
Î Individual businesses, with each business unit operating as
independent profit center
1-47

Step 3: Determine How Much

Authority to Delegate to Whom
‹ In a centralized structure

Î Top managers retain authority

for most decisions

‹ In a decentralized structure

Î Managers and employees are

empowered to make decisions

‹ Trend in most companies

Î Shift from authoritarian to decentralized

structures stressing empowerment
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Characteristics of
Centralized Decision Making
‹ Top executives retain authority
Î For most strategic and operating decisions and
Î Keep a tight rein on lower-level managers
‹ Minimal discretionary authority is granted to
Î Frontline supervisors
p
Î Rank-and-file employees
‹ Key advantage – Tight control by top
managers fixes accountability
‹ Disadvantages
Î Lengthens response time to changing conditions
Î Does not encourage responsibility among lower-level managers and
employees
Î Discourages lower-level managers and employees from exercising
1-50
initiative

Advantages of a Decentralized
Structure
‹ Creates a more horizontal structure with fewer management layers
‹ Managers and employees develop their own answers and action plans
Î Make decisions in their areas of responsibility
Î Held accountable for results
‹ Shortens organizational
g response
p times and spurs
p
Î New ideas
Î Creative thinking and innovation
Î Greater involvement of managers and employees
‹ Jobs can be defined more broadly
‹ Fewer managers are needed
‹ Electronic communication systems provide quick, direct access to data
‹ Genuine gains in morale and productivity

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Maintaining Control in
a Decentralized Structure
‹ Place limits on authority empowered employees can exercise

‹ Hold people accountable for their decisions

‹ Institute compensation incentives that reward employees for

doing their jobs in a manner contributing to good company
performance

‹ Create a corporate culture where

there’s strong peer pressure on
employees to act responsibly

1-52

Step 4: Provide for Internal

Cross--Unit Coordination
Cross
‹ Classic method of coordinating activities – Have related
units report to single manager
Î Upper-level managers have clout to
coordinate efforts of their units
‹ Support activities should be
woven into structure to
Î Maximize performance of primary activities

Î Contain costs of support activities

‹ Formal reporting relationships often need to be

supplemented to facilitate coordination
1-53

Guard Against Functional

Designs That Fragment Activities
‹ Scattering pieces of critical business processes across several
specialized departments results in
Î Many hand-offs which
„ Lengthens completion time
„ Drives up administrative costs
„ Increases risk of details falling through the cracks
Î Obsession with activity rather than result
‹ Solution ¨ Business process reengineering
Î Involves pulling strategy-critical
processes from functional
departments to create process departments or cross-
1-54 functional work groups

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Examples of Fragmented
Strategy--Critical Activities
Strategy
‹ Filling customer orders

‹ Speeding new products to market

‹ Improving product quality

‹ Supply chain management

‹ Building capability to conduct business via the Internet

‹ Obtaining feedback from customers, making product

modifications to meet their needs

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Coordinating Mechanisms to Supplement the

Basic Organization Structure
‹ Cross-functional task forces

‹ Dual reporting relationships

‹ Informal networking

‹ Voluntary cooperation

‹ Incentive compensation tied

to group performance

‹ Teamwork and cross-

departmental cooperation
1-56

Step 5: Provide for

Collaboration With Outsiders
‹ Need multiple ties at multiple levels to ensure

Î Communication

Î Coordination and control

‹ Find ways to produce collaborative

efforts to enhance firm’s capabilities
and resource strengths
‹ While collaborative relationships present opportunities, nothing
valuable is realized until the relationship develops into an
engine for better organizational performance
1-57

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Roles of Relationship Managers

With Strategic Partners
‹ Get right people together

‹ Promote good rapport

‹ See plans for specific activities

are developed and implemented

‹ Help adjust internal procedures

and communication systems to

Î Iron out operating dissimilarities

Î Nurture interpersonal ties

1-58

Current Organizational Trends

‹ Numerous companies have completed the task of remodeling
traditional, hierarchical structures built on
Î Functional specialization and

Î Centralized authority
y
‹ Corporate downsizing movement in the
late 1980s and early 1990s was aimed at
Î Recasting authoritarian, pyramidal
organizational structures
Î Into flatter, decentralized structures

1-59

Drawbacks of Centralized
Authoritarian Structures
‹ Centralized or authoritarian structures have often turned out
to be a liability where
Î Customer preferences shift from
standardized to customized products
Î Product life-cycles grow shorter

Î Flexible manufacturing replaces

mass production
Î Customers want to be treated as individuals

Î Pace of technological change accelerates

Î Market conditions are fluid

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Organizational Structures of
the Future: Overall Themes
‹ Revolutionary changes in how work is organized have been
triggered by
Î New strategic priorities
Î Rapidly shifting competitive conditions

‹ Tools of organizational design include

Î Empowered managers and workers The future
structure
Î Reengineered work processes will be . . .

Î Self-directed work teams

Î Rapid incorporation of Internet
technology
Î Networking with outsiders
1-61

Characteristics of
Organizations of the Future
‹ Extensive use of Internet technology
and e-commerce business practices
‹ Fewer barriers between
Î Different vertical ranks Change &
Learning
Î Functions and disciplines
Î Units in different geographic locations
Î Company and its suppliers, distributors,
strategic allies, and customers
‹ Capacity for change and rapid learning
‹ Collaborative efforts among people in different
functions and geographic locations
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